Wednesday, July 30, 2014
How Publishing Loses When Amazon Loses Money
Book publishing has long been perceived as a business for those with a passion, but not a penchant for profits, but the truth is book publishing generates billions of dollars in revenue annually—and profits in the hundreds of millions. People are under the impression that Amazon owns the industry, and that Amazon is such a great retailer, but the company loses lots of money.
Despite bringing in 19.34 billion dollars in the second quarter, Amazon lost $126 million. It is estimating it could triple those losses in the next quarter. Wall Street may finally be catching on.
The stock tumbled 10% to $322.50 after it made this announcement.
But the stock is way overpriced when you look at standard price-to-earnings ratios that Wall Street uses to guess which bets it should make.
Amazon can’t run on losses forever. As it is, it used to generate the tiniest profits on a massive amount of revenue, but now it’s bleeding money.
So the scary part is that book publishing is getting beaten by a company that’s losing money. Further, despite the recent stock price decline, the stock is worth way more than the company really is. The world is upside down.
What will it take for people to wake up—Amazon undersells its competition, taking losses now in hopes of winning more business and being in a position to later raise prices once the competition is killed.
Some authors love Amazon, as if they couldn’t make money without them. But Amazon doesn’t do anything for authors that another retailer couldn’t do. Amazon does give free marketing or publicity. Amazon doesn’t exist to serve customers—it exists to make money. Don’t be fooled into thinking anything else.
But if Amazon wants to lead the publishing industry, how can it do so while losing money? While it seeks to undercut the market, it is destroying the market.
Book publishers may not feel they can afford to cut off Amazon, and many kindle owners would not want that, but at some point, publishers should consider doing just that. The current model won’t work long-term for publishers and it doesn’t seem to be working for Amazon.
Books—all books—need to sell and get read. Many won’t sell more than a few hundred or few thousand copies. How is Amazon helping them?
Discoverability can’t just come from cheap prices—it comes from PR, marketing, and good distribution. The market is saturated with books but only a certain number offer true quality. And it is those books that need to be sold, read, and talked about. Amazon’s price-cutting won’t stop the laws of natural selection.
Consumers need to be educated about Amazon the way they need to understand that buying fast food and junk food might meet one's budgetary but not their dietary needs. Amazon is the McDonald’s of books, seeking to sell us inexpensive product that isn’t’ necessarily what’s best for us.
The way to grow book purchases is:
· Publish books of quality
· Publicize them to others
· Increase the number of literates
· Encourage people to value books
· Demand consumers increase their book budget
· Not to rely on price-cutting on books people would otherwise pay more for
· Not to sharply discount unknown authors, forcing readers to see that a new and unknown is to be equated with worthless and cheap
Amazon should raise prices, work with publishers, and open up some physical stores. Right now, Amazon is just a bully that bleeds money.
Brian Feinblum’s views, opinions, and ideas expressed in this blog are his alone and not that of his employer, Media Connect, the nation’s largest book promoter. You can follow him on Twitter @theprexpert and email him at firstname.lastname@example.org. He feels more important when discussed in the third-person. This is copyrighted by BookMarketingBuzzBlog © 2014